Both in Europe and the UK, concerns have been raised over increasing evidence of poor conduct and risks to investor protection from retail contracts for differences (CfDs). In addition, there has been an increase in the number of firms operating in the CfD market, often selling through online platforms, prompting concerns that retail customers trading CfD products do not have an adequate understanding of these products.

Regulatory Response

ESMA is still considering the possible use of its product intervention powers under MiFIR to address these investor protection risks. In particular, ESMA is considering measures to:

  1. Prohibit the marketing, distribution and sale of binary options to retail clients.
  2. Restrict the marketing, distribution and sale to retail clients of CFDs, including rolling spot forex.
  3. Restrict or prohibit the marketing, distribution and sale to retail clients of CFDs on cryptocurrencies.

As part of its considerations, ESMA published a consultation in January 2018 asking for evidence from stakeholders on the impact of a number of specific proposed measures.  Should the intervention powers be used, they can have an initial duration of up to three months and are renewable.

The FCA has decided to delay making final rules for UK firms pending the outcome of ESMA’s consultation.  The FCA will continue to engage with ESMA and will reconsider domestic rules in the first half of 2018.

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